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Tax Plans

Peter Kavelaars

Last week was ‘Prinsjesdag’ in the Netherlands; a somewhat peculiar term, by the way, as there is no longer a little prince to be seen. So, it's Princess Day now. Despite the caretaker status of the government, a record number of tax legislative proposals have been submitted: depending on how one defines it, about 15 of them. So, we have a diligent State Secretary for Finance. What's interesting is that one of the legislative proposals exclusively pertains to the BES (Bonaire, St. Eustatius, and Saba). Apart from the constitutional reform in 2010, this has never happened before. It shows interest in the BES. The explanation also indicates that prior consultations were held with the BES regarding the content, as it should be. However, what is unfortunately not very clear is what input was provided and what exactly happened with it. Clearly, there is room for improvement for the next time. Furthermore, it would be great if Members of Parliament would ask questions about this. I will refrain from discussing the proposals here because this newspaper already covered them on Wednesday. Nonetheless, one point to note is that the so-called pillar 2 of the OECD, which provides for a minimum corporate tax rate of 15%, will also apply to the BES. I find this to be a peculiar situation: an area that has no corporate tax but applies pillar 2, which is aimed at imposing a minimum corporate tax. This is probably a unique situation in the world. It would make more sense, in my opinion, to introduce a 15% corporate tax and abolish the revenue tax and property tax. Both are peculiar taxes, and from an international perspective, having a corporate tax, rather than the current two replacement taxes, would be better, especially for the prevention of double taxation. It is not clear why this option was not chosen.

Regarding the fiscal adjustments in the Netherlands, most measures are not very interesting. However, it is clear that higher incomes and the wealthy will face a heavier tax burden increase than other citizens. An example is the box 3 tax, the rate of which will be increased to 34% in 2024, up from the long standing 30%. However, there are doubts about the effectiveness of box 3: after the well-known Christmas judgment, which laid the old box 3 to rest, a bridging regime of ten years was introduced. Just this week, the Advocate General at the Supreme Court issued advice on this matter and, in short, recommended that this transitional regime could also be discarded because it violates European law. If the Supreme Court follows this advice, the government will once again have empty hands: there will be no revenue to collect. A glimmer of hope may be that there is now a draft law for internet consultation that provides for a combined wealth increase and capital gains tax. Perhaps it can be introduced more quickly in that case.

A rather unsympathetic measure is the limited indexing of the tax brackets in income tax. This is quite relevant because inflation in the Netherlands is about 10%. It is a rule that tax brackets and other amounts are indexed with inflation. This costs the government over €350 million for every €1,000 increase in the
indexation of the bracket where the high income tax rate of 49.5% starts, currently around €73,000. With a full 10% correction, this would amount to a budgetary burden of around €2.5 billion. The caretaker government finds this a bit too much: the correction is limited to just under 4%. One could say that this is a form of legalized theft that primarily affects higher incomes. Numerically, this means that the second tax bracket in 2024 starts at about €75,500, whereas with a full inflation correction, it would be around €80,000.

For the rest, the plans mainly contain technical adjustments that are not very interesting and will remain unaddressed. We will have to wait a while longer for something really interesting to happen: that will only be the case after the installation of a new government. Many more nights will surely pass until then.

Peter Kavelaars is a Professor of Fiscal Economics at Erasmus University Rotterdam and of counsel at Deloitte Dutch Caribbean.

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